Neoclassical economics, the underlying economic paradigm for both Keynesianism and neoliberalism and does not explicitly incorporate ecological integrity into its model. Neither keynesianism nor neoliberalism recognises the environment as anything other than an external factor. In economists’ speech, the environment is an “externality”.
Environmental economics, a branch of neoclassical economics, was developed in the 1960s and sought to commodify the environment, and put a price on ecological values. Pollution and other environmental problems were described as “market failures”; and cost-benefit analysis was the tool of choice for analysing investment decisions. Unfortunately, the process of discounting used by economists, whereby a benefit received in a future time period is converted to an equivalent value received immediately, inevitably results in the future ecological benefits being undervalued. (The bird in hand principle - people prefer a certain return now to an uncertain future return)
Neoliberalism is capitalism on steroids and demands exponential economic growth. The thirst for growth requires ever increasing production of physical goods and fuels more and more consumption especially in the wealthiest nations. Neoliberal policies have accelerated emissions of greenhouse gasses and are pushing up against the physical limits of a finite planet.
Globally, if we were to meet to OECD’s target growth rate of 3% per annum compound interest, by the middle of the century, the global economy would be four times larger than it is today. When it comes to environmental destruction, the richest 1% are responsible for as much as the poorest 38%. As Kenneth Boulding said “Anyone who believes in infinite growth, on a finite planet, is either mad or an economist.”